We’re Overbuilt Right Now

From WGLT on Illinois. “For years, Illinois State University has been knocking down old dorms and nudging its sophomores, junior, and seniors into off-campus apartments. Developers and landlords looking to make a buck responded by building more and more apartment buildings. But all that could soon be flipped upside down.”

“ISU is pivoting back into on-campus housing. Landlords say vacancies will rise as more students stay on campus, cutting into their revenue and increasing the likelihood for dilapidation and even foreclosures.”

“‘There’s gonna be some pain,’ said Ed Sauder, an owner of The Summit, the $4 million-plus student apartment building that opened in 2018. ‘If you have somebody that’s highly leveraged, and their cash flow is based on a historical 90 percent occupancy rate, and they shift to 80 percent, they’re not gonna be able to make cash flow. And the banks will be very aggressive on keeping tabs of that.'”

“A search on Craigslist returns hundreds of available rental properties that offer gift cards and/or free rent upon moving in. Most listings offer a minimum Amazon or Visa gift card value of USD$500, while some are high as USD$2,000. And on top of the free gift card, many listings also offer free rent ranging from two weeks to as long as two months, with most listings offering one month.”

“‘Typically in Seattle when a new building opens up with lots of vacancies they do offer move-in specials to try to sway renters over to the building,’ Kim Reidy, a senior broker at Point 3 Real Estate, told Daily Hive.”

The Post and Courier on South Carolina. “A proposed ‘pop up hotel’ plan at Charleston’s rising WestEdge development is over, before it ever really started. What was unusual about the application was that it was proposed for an already-rising apartment building, 10 WestEdge.”

“The pop up hotel concept is the brainchild of hospitality start-up WhyHotel. By operating temporary lodgings in luxury apartment buildings, the company isn’t quite a hotel but also differs from home-share services such as Airbnb. The company also claims to help solve a business problem for many apartment buildings: bringing in revenue during the first couple years of operation, when some units sit empty.”

“The arrangement had seemed like a ‘win-win proposition,’ said David Tyndall, owner of the firm behind the WestEdge developments. But venturing into hotel development in Charleston proved to be complicated. ‘None of us are hotel developers, not do any of us have plans to become such,’ Tyndall said.”

From Bloomberg. “Steve Cohen is having trouble selling one of his trophy properties. The billionaire has dropped the price of his midtown Manhattan duplex more than six times in six years and is now asking US$45 million for the apartment — a US$70 million discount to the US$115 million he originally listed it for in April 2013.”

“‘He finally got it right, and the market will show him that,’ said luxury broker Victoria Shtainer, who lives in the building. ‘One Beacon Court used to be the only game in town,’ she said. ‘That’s why he priced it so crazily.'”

‘There’s gonna be some pain,’ said Ed Sauder, an owner of The Summit, the $4 million-plus student apartment building that opened in 2018. ‘If you have somebody that’s highly leveraged, and their cash flow is based on a historical 90 percent occupancy rate, and they shift to 80 percent, they’re not gonna be able to make cash flow. And the banks will be very aggressive on keeping tabs of that.’

First of all, Ed here is fooked. But he makes a point that shows how fragile the financing is with these rentals. And some projects have much slimmer margins than what he describes, even going so far as to rely on even higher rents year after year.

‘The pop up hotel concept is the brainchild of hospitality start-up WhyHotel. By operating temporary lodgings in luxury apartment buildings, the company isn’t quite a hotel but also differs from home-share services such as Airbnb. The company also claims to help solve a business problem for many apartment buildings: bringing in revenue during the first couple years of operation, when some units sit empty’

The underlying business model for companies like Uber, Lyft, AirBNB and WhyHotel collapses if the same regulations with which their competitors must comply are imposed on them. I provide this as a warning to people who may be tempted to invest in the upcoming IPOs. An investor on the open market will likely be a bagholder.

As fellow commenter foo pointed out the last time I posted this article, Uber has since taken on large amounts of debt and is receiving local government subsidies. Both of these are also unsustainable.

‘Uber’s most distinctive capabilities focused on defending its illegality. Uber built up staff, procedures, and software systems whose purpose was to enable and mobilize passengers and drivers to lobby regulators and legislators — creating political disaster for anyone who questioned Uber’s approach. The company’s phalanx of attorneys brought arguments perfected from prior disputes, whereas each jurisdiction approached Uber independently and from a blank slate, usually with a modest litigation team. Uber publicists presented the company as the epitome of innovation, styling critics as incumbent puppets stuck in the past.’

‘Through these tactics, Uber muddied the waters. Despite flouting straightforward, widely applicable law in most jurisdictions, Uber usually managed to slow or stop enforcement, in due course changing the law to allow its approach. As the company’s vision became the new normal, it was easy to forget that the strategy was, at the outset, plainly illegal.’

‘Uber faced an important challenge in implementing this strategy: It isn’t easy to get people to commit crimes. Indeed, employees at every turn faced personal and professional risks in defying the law; two European executives were indicted and arrested for operating without required permits. But Uber succeeded in making lawbreaking normal and routine by celebrating its subversion of the laws relating to taxi services. Look at the company’s stated values — “super-pumped,” “always be hustlin’,” and “bold.” Respect for the law barely merits a footnote.’

Illegality alone is not the issue. These companies are in direct competition with companies that must comply with regulations. Their revenue streams derive from evading these regulations. You can’t have different rules for direct competitors in the same market.

“Steve Cohen is having trouble selling one of his trophy properties. The billionaire has dropped the price of his midtown Manhattan duplex more than six times in six years and is now asking US$45 million for the apartment — a US$70 million discount to the US$115 million he originally listed it for in April 2013.”

‘He finally got it right, and the market will show him that,’ said luxury broker Victoria Shtainer, who lives in the building. ‘One Beacon Court used to be the only game in town,’ she said. ‘That’s why he priced it so crazily.’

Well, that and the luxury condo bubble, Victoria. It sure ain’t the only game in town anymore! Turns out they can build as many of these airboxes as you want. $45 million is still crazy. One could invest that and with the profits stay in luxury hotels and resorts all over the world, every day of the year. The only reason to buy is thinking you can sell it for a lot more. Which isn’t gonna happen.

“Cohen bought the five-bedroom unit in One Beacon Court between 58th and 59th Streets for US$24 million in 2005. He hired architect Charles Gwathmey, who renovated the Guggenheim Museum, to work on the 9,000-square-foot space. The apartment is the only duplex in the building.”

45 millions is still to high…no more Stupid CHinese money launders Steve

Its the net entry (entries minus exits) that matters. Soon to go negative for the elderly, due to Baby Boomer die off. I don’t know about the student housing market, but a significant increase in kids living at home while completing online courses or attending commuter schools could seriously dent student housing demand.

“Those in the 35-44 age group have “the highest debt levels of any age bracket,” SmartAsset notes, citing Federal Reserve data. Their average debt, at least among households with debt. is $152,400, compared to only about $82,000 for the under 35 set.”